Nonprofits Adopt For-Profit Methods to Help the Poor — and Make a Profit

Nonprofits Adopt For-Profit Methods to Help the Poor — and Make a Profit

Driven in part by a new generation of wealthy donors eager to apply their business skills to social missions, for-profit thinking is changing the way nonprofit organizations operate, the Seattle Times reports.

The explosion of interest among socially minded entrepreneurs in providing financial services to the world's poor also signals a recognition that lasting solutions to disease, poverty, and other global problems are so complex that they require new forms of collaboration. For instance, Google.org, the search giant's philanthropic arm, was specifically created without tax-exempt status in order to support both for-profit and nonprofit work while making money in the process. Similarly, the X Prize Foundation creates high-profile competitions designed to attract and motivate radical breakthroughs involving some of the most important challenges facing humanity and rewards millions of dollars to the teams that achieve them. And the Bill & Melinda Gates Foundation and its Seattle neighbor PATH, an international nonprofit organization, are working with pharmaceutical companies to push the development of vaccines for people in developing nations, paying for research the drug companies wouldn't otherwise fund.

Few efforts, however, blur the line between doing good and making money as dramatically as for-profit microfinance programs. In India, SKS Microfinance works to connects poor people looking for loans to expand their tiny businesses with wealthy investors in the United States hoping to make a profit. Borrowers, mostly women, use the microloans to buy fish nets, goats, water buffaloes, or other things that can help them make a living and pay back the loans with 25 percent interest. SKS, in turn, returns about 20 percent to the original investors, which is considered a healthy return for venture-capital funds. It isn't a bad deal for the borrowers, either, says Chris Brookfield, investment director for Unitus Equity Fund, since typically the only loans available to SKS clients are from local moneylenders who charge interest rates of up to 120 percent.

Still, the model has its skeptics — including economist Muhammad Yunus, who won the Nobel Peace Prize for his pioneering work establishing microcredit programs in Bangladesh and other developing countries. "I would just appeal to them, 'Don't go all the way to maximize profit in a kind of literal sense, not to grab as much money as you can,'" he said in an interview last year. Others worry that such loans are not reaching those on the very bottom rungs of the economic ladder; that without the appropriate financial infrastructure, poor people run the risk of becoming overindebted; and that the quest for profit could detract from the original goal — helping the poor.

"There's an entrenched idea that you're either doing charity or you're making money and there's nothing in between," said Brookfield. "I'm trying to walk the middle ground."

Kristi Heim. "Making a Profit While Helping the Poor." Seattle Times 04/29/2007.